BUSINESS ANALYST
EXPERIENCE
PROGRAM
PROJECT 1
Submitted BY:
Name: Rahul Kumar Chanda
Contact Number: 8777284305
Email: [email protected]
College: Management Development Institute Murshidabad
Rahul Kumar Chanda
[email protected] Case Study
An Indian IT Service and product company has an employee base of 5000+ resources all over the globe.
Around 73% of the resources are based out of India (Mumbai, Pune, Hyderabad and Ahmedabad). Total
employee strength includes 690 contractors out of which 60% are in India, 5% in Australia and 7% in Asia
Pacific centres. These contractors are on an average 1.4 times costlier than permanent employees.
Its customers are across 35 countries mainly in the US (32%), Middle-east (27%) and Europe (20%).
Its main business is providing IT solutions and Annual Maintenance Services. Though they provide IT
solutions in all the domains, 46% of their revenue comes from BFSI sector, 21% is from the Healthcare sector
and the rest from other sectors like Retail, Public sector, Manufacturing, Travel, Entertainment etc.
Its product-based business is providing pre-made softwares and applications for companies. The three
products they offer are DevOps bundle, cybersecurity and digital marketing. 90% of revenue comes from the
digital marketing product.
It enjoys a good margin from BFSI (42%) and Retail (39%) sectors and also from business in the US (48%)
and Europe (44%) region. The margin is very low in business in India (9%) and other Asia Pacific countries
(14%).
It is finding it difficult to be at par with its competitors on a year-on-year margin improvement rate which is
11% v/s 26% by other comparable IT companies in India. To address this, it is thinking of acquiring smaller
organisations which specialise in niche technologies and having a larger customer base which will help them
in increasing its employee base and expand the business with cross-sell opportunities.
Will the acquisition help in the improvement of margins? If yes, then why? If not, then what alternate strategy
should the company follow?
Instruction Set
1. Identify the root problem and use the MECE (mutually exclusive, comprehensively exhaustive) principle,
discussed already in the module videos, to break down the problem.
2. Using the profitability tree down structure, divide it in two parts ‘Revenue’ and ‘Cost’.
3. Further branching can be done according to your logic but do keep in mind that those parameters shouldn’t
overlap. E.g., Revenue and profit are overlapping parameters.
4. For revenue, 60% of it comes from IT solutions and maintenance, and rest comes from its products.
5. The company is looking forward to investing in India, US and Europe. See the potential growth for
different sectors in these geographical locations.
6. In the US and Europe, the healthcare sector seems promising and the same for India with the BFSI sector.
Explore other options and see what could be done differently.
7. Finally, provide recommendations for where the company should invest and what kind of acquisitions it
should do.
Root Problem
The primary cause of the Indian IT service and product company's inability to attain a year-on-year margin
improvement rate equal to other Indian IT firms (11% vs. 26%). This suggests that the firm is having
difficulty improving its profitability and remaining competitive in the market.
Factors Contributing to the Problem
Heavy • The firm relies largely on its digital marketing solution, which accounts for 90%
Dependence on of its income. While this product has been successful thus far, such reliance on
the Digital a single product might be dangerous. Any changes in market demand for digital
Marketing marketing solutions might have a substantial influence on the company's
revenue and profits.
Product
Low Margin in • The company's business activities in India (9%) and other Asia Pacific nations
India and Other (14%), have low profitability. This might be due to fierce competition and
pricing pressures from local competitors in certain locations. Low margins
Asia Pacific may be caused by insufficient differentiation tactics or an inability to respond
Countries to the special demands of certain markets.
Inefficiencies in • The firm employs 690 contractors, 60% of whom are based in India.
Contractors are typically 1.4 times more expensive than permanent staff.
Contractor Inefficiencies in the management and optimisation of contractor utilisation
Utilization may be adding extra expenditures to the company's operations.
• While the BFSI sector generates a considerable share (46%) of the company's
Limited Growth revenue and has a strong margin (42%), other sectors such as retail, public
in Sectors Other sector, manufacturing, travel, entertainment, and so on may have limited
Than BFSI growth potential. Concentrating on a larger range of businesses and
diversifying income streams might boost overall profitability.
Challenges in • The firm has a large presence in the United States (32%), as well as Europe
Expanding to New (20%), where it enjoys excellent margins (48% in the United States and 44% in
Europe). However, due to rivalry, legal constraints, and cultural differences,
Geographical entering new geographical markets and establishing a presence in locations
Markets such as the Middle East and other Asia Pacific countries may be difficult.
• Despite the fact that the firm offers three products, the digital marketing
Lack of Product package alone generates 90% of the income. Limited diversification into other
Diversification goods such as the DevOps package and cybersecurity may impede revenue
growth and margin improvement.
Inability to Keep • The year-on-year margin improvement rate of the firm (11%) is much lower
Pace with than that of other comparable IT companies in India (26%). This might be
Competitors in ascribed to a combination of the problems mentioned above, such as a
Margin significant reliance on a single product, regional margin difficulties, and poor
product diversity.
Improvement
MECE (Mutually Exclusive and Completely Exhaustive
It is a problem-solving technique that divides the problem into various parts and forms a kind of an Issue Tree.
BFSI Sector
(46% of Revenue)
IT Solutions and Healthcare Sector
Maintenance (21% of Revenue)
Other Sectors
(Remaining
Revenue)
Revenue
Analysis Digital Marketing
Product
(90% of Revenue)-
High Margin
Product-Based
Business DeveOps Bundle
Profitability
Analysis Cybersecurity
Permanent
Fixed Costs Employees Salaries
Cost of Goods Sold
(COGS) for Product-
Cost Analysis Based Business
Sales and
Marketing Expenses
Variable Costs
Product
Development and
Marketing Costs
Contractor
Expenses
Geographic Revenue Distribution
Geographic Revenue Distribution
14%
Other Asia Pacific Countries
9%
India
Countries
44%
Europe
20%
Middle-East
27%
48%
US
32%
0% 10% 20% 30% 40% 50% 60%
Other Asia
US Middle-East Europe India
Pacific Countries
Margin 48% 44% 9% 14%
Percentage of Customers 32% 27% 20%
% Of Customers & margin
Margin Percentage of Customers
Revenue Analysis
1. IT Solutions and Maintenance:
• BFSI Sector: Look at expanding IT solutions and maintenance services in the BFSI sector by using
the company's experience and reputation in this industry. Revenue can be increased by targeting new
BFSI clients and broadening the area of services.
• Healthcare Sector: Invest in healthcare-specific IT solutions and services in the United States and
Europe. Increase income from this market by forming partnerships and alliances with healthcare
organisations.
• Other Sectors: Identify prospective development opportunities in other industries and offer
customised IT solutions to meet their unique demands, expanding the client base and diversifying
revenue.
2. Product-Based Business:
• Digital Marketing Product: Continue to invest in the development and marketing of the digital
marketing product, with a worldwide focus on attracting new clients. To maximise income from this
product, look at options for upselling and cross-selling to current clients.
• DevOps Bundle and Cybersecurity: Allocate resources to improve the DevOps bundle and
cybersecurity solutions' features and capabilities. Conduct market research to determine client needs
and adapt goods to meet those demands in order to improve adoption and revenue.
3. Geographic Revenue Distribution:
• US and Europe: Increase sales and marketing efforts in the United States and Europe, with an
emphasis on the healthcare business in particular. Maintain positive connections with current
clients to generate repeat business and referrals.
• India and Other Asia Pacific Countries: Look for opportunities to create income in India and other
Asia Pacific countries by focusing on high-margin sectors and promoting the company's product-
based business.
Cost Analysis
1. Employee Cost:
• Contractor Management: Determine the necessity for contractors and optimise their use.
Determine areas where permanent workers may do duties that were previously assigned to
contractors, lowering total expenses.
• Operational Efficiency: Take steps to improve operational efficiency, which can result in cost
savings. Reduce waste and duplication by streamlining procedures and workflows.
• Cost-effective Alternatives: Outsource certain non-core operations to locations with cheaper labour
costs to reduce expenses while maintaining service quality.
Potential Growth for Different Sectors
a) India:
• The firm has a large personnel base in India, which it may strategically use to investigate numerous
industries for possible expansion. While the BFSI industry appears to be promising in India, there are
other areas to examine.
• BFSI Sector: By supplying specialised IT solutions and services suited to the particular demands of
financial institutions, the firm may further improve its position in the BFSI industry. To meet the
sector's changing expectations, this might include sophisticated analytics, digital transformation, and
cybersecurity solutions.
• Healthcare Sector: While the BFSI sector is robust, the organisation may also capitalise on India's
burgeoning healthcare industry. The country's healthcare industry is rapidly digitising and adopting
technology, offering potential for IT service providers to offer solutions in electronic health records,
telemedicine, healthcare analytics, and patient interaction platforms.
• E-commerce and Retail: In recent years, India's e-commerce and retail sectors have grown
significantly. The organisation may provide IT solutions to assist e-commerce platforms, supply chain
management, inventory optimisation, and improving the consumer experience.
• Government and Public Sector: With the Indian government's emphasis on digital projects, the
firm has potential to supply IT solutions for e-governance, smart cities, and public service delivery.
b) US and Europe:
The US and Europe are lucrative markets for IT services, and the company can focus on specific sectors to drive growth
in these regions.
• Healthcare Sector: The healthcare industry in the United States and Europe is technologically
advanced, with a constant demand for IT solutions to improve patient care, data security, and
operational efficiency. Electronic health records, telemedicine solutions, health information
exchanges, and healthcare analytics are all possible targets for the organisation.
• Banking and Financial Services: Like India, the BFSI industry in the United States and Europe
has enormous development potential. Advanced banking software solutions, payment processing
systems, fraud protection tools, and regulatory compliance solutions are all available from the
organisation.
• Manufacturing and Industry 4.0: As part of the continuing Industry 4.0 transformation,
manufacturers in the United States and Europe are looking for IT solutions for process automation,
IoT integration, predictive maintenance, and supply chain optimisation.
• Cybersecurity Services: As cyber risks become more prevalent, there is a growing demand for
cybersecurity services in both areas. The organisation may broaden its cybersecurity products to meet
the specific demands of enterprises across industries.
•
Exploring Other Options
While the BFSI sector in India and the healthcare sector in the US and Europe offer promising opportunities,
the company should also explore other options to diversify its revenue streams and improve its margins:
• Retail and E-commerce: Increasing the availability of IT solutions for the retail and e-commerce
industries in all countries may help boost revenue development. Services such as personalised
marketing, inventory management, and omnichannel customer experience might be advantageous.
• Digital Transformation and Cloud Services: Place a premium on digital transformation and cloud
services across all industries and geographies. Many businesses are experiencing digital
transformation, and there is a growing need for cloud solutions. The corporation may promote itself
as a trustworthy partner for businesses wishing to use cutting-edge technologies.
• Emerging Technologies: Invest in emerging technologies such as AI, machine learning, the Internet
of Things (IoT), and blockchain. Offering cutting-edge solutions in these areas will help you attract
new clients and increase your profit margins.
• Partnerships and Acquisitions: Consider collaborating with strategic partners and purchasing
smaller organisations specialising in specialised technology. This can broaden the company's
capabilities and client base, allowing for cross-selling and revenue development.
By diversifying into various sectors and focusing on specific growth areas in India, the US, and Europe, the
company can improve its revenue streams, achieve higher margins, and stay competitive in the IT industry.
Will the acquisition help in the improvement of margins? If yes, then why? If not,
then what alternate strategy should the company follow?
Let's examine the possible impact on income and expenses to see if the purchase of smaller organisations
can assist increase margins. We'll also look at the company's present difficulties and how well this plan is
working to overcome them.
Revenue Analysis:
Acquiring smaller organisations that specialise in specialist technology and have a bigger client base might
result in various revenue-related benefits:
• Increased Customer Base: Acquiring companies with a larger customer base can expand the IT
service and product company's reach, enabling cross-selling opportunities for its existing products and
services. This can result in increased revenue from both the IT solutions and maintenance business and
the product-based business.
• Access to New Markets: If the acquired companies operate in different geographic regions or
industries, it can open doors to untapped markets, allowing the IT company to diversify its revenue
streams and reduce reliance on specific sectors and regions.
• Leveraging Niche Technologies: Acquiring organizations with niche technologies can enhance the
company's service offerings and product portfolio, potentially attracting more clients and generating
higher-value contracts, leading to increased revenue.
Cost Analysis:
While the acquisition may offer revenue benefits, it's essential to consider its impact on costs:
• Integration Costs: Acquiring and integrating smaller organizations can involve significant costs,
including due diligence expenses, legal fees, and integration efforts. These costs can initially impact
the company's financials.
• Operational Efficiency: The success of the acquisition depends on how effectively the company
integrates the new resources and optimizes their productivity. Inefficiencies during integration can lead
to increased operational costs.
Addressing Margin Improvement:
The company's main challenge is achieving a year-on-year margin improvement rate comparable to other IT
companies in India (11% vs. 26%). While acquisitions can contribute to revenue growth, they may not directly
address the root cause of the margin challenge. To address the margin improvement issue effectively, the
company should consider the following alternate strategies:
• Cost Optimization and Efficiency Improvement: Instead of solely focusing on acquisitions, the
company should assess its current cost structure and identify areas for optimization. This may involve
streamlining operations, reducing redundant expenses, and enhancing employee productivity.
• Investment in Research and Development: Investing in research and development can lead to the
creation of innovative products and solutions. New, unique offerings can potentially command higher
margins and strengthen the company's competitive advantage.
• Strategic Pricing and Contract Management: Reviewing pricing strategies and contract
management practices can help the company negotiate more profitable deals and avoid revenue
leakage.
• Client Retention and Satisfaction: Improving customer retention and satisfaction can lead to repeat
business and positive word-of-mouth referrals, reducing customer acquisition costs and contributing
to sustained revenue growth.
• Focus on High-Margin Markets and Products: The company should prioritize its efforts on high-
margin markets, such as the US and Europe, and focus on its high-margin products, like digital
marketing. This targeted approach can yield better financial results.
• Enhanced Sales and Marketing Efforts: A stronger sales and marketing strategy can help the
company attract higher-value clients and effectively communicate the value of its products and
services, leading to improved revenue and margins.
Potential Strategies and Recommendations
1. Investment in Promising Sectors: The company should focus on investing in the promising sectors
in each geographic region to maximize revenue and margin potential. This includes:
• India: Further investment in BFSI sector, considering its potential growth.
• US and Europe: Capitalizing on the growth potential of the Healthcare sector.
2. Product Focus and Cross-Selling: Since the digital marketing product brings in 90% of the revenue,
the company should continue to focus on this area and explore opportunities for cross-selling the other
two products (DevOps bundle and cybersecurity) to existing customers.
3. Acquisitions in Niche Technologies: To address the margin improvement challenge, the company
should consider acquiring smaller organizations that specialize in niche technologies. These
acquisitions can provide access to a larger customer base and offer cross-selling opportunities, leading
to potential revenue growth and improved margins.
4. Geographic Expansion: The company should strategically expand its presence in the US and Europe
to tap into the higher-margin markets and leverage the potential growth in the Healthcare sector.
5. Efficient Cost Management: Since contractors are 1.4 times costlier than permanent employees, the
company should focus on optimizing its workforce mix and try to minimize the dependency on
contractors where possible.
6. Competitive Benchmarking and Innovation: The company needs to closely analyze its competitors
and identify areas where it lags behind, particularly in terms of margin improvement rates.
Emphasizing innovation and staying ahead in the rapidly evolving IT industry can contribute to
improved margins.
7. Customer Retention and Satisfaction: Retaining existing customers and ensuring their satisfaction
is crucial for generating recurring revenue and maintaining long-term relationships. Happy customers
are more likely to provide repeat business and refer new clients.
8. Market Diversification: While BFSI and Retail sectors provide good margins, the company should
explore opportunities to diversify its market presence across other industries and geographies. This
diversification can reduce dependence on specific sectors and regions, providing more stability in the
long run.
Conclusion
Overall, the acquisition of smaller organizations with niche technology and larger customer base, and
strategic focus on promising sectors and geographic expansion can help an Indian IT company improve
margins and remain competitive in the industry. To achieve sustainable margin growth, the company should
focus on optimizing costs, investing in R&D, refining pricing strategies, improving customer satisfaction
and strategically targeting high-margin markets and products. A multifaceted approach that includes these
strategies can improve a company's financial performance and improve competitiveness. In addition,
effective cost management and customer-centric strategies are central to achieving sustainable growth and
profitability.
